Are you planning to take out your first loan but have no idea what you need to know or what initial steps to take? If you answered “yes” to this then you might be glad to know that you aren’t alone!
Taking out a loan at any point in your life can be a stressful experience but especially so if you are new to the borrowing process. There are confusing interest rates to keep track of, unfamiliar terms to encounter, and many lenders to choose from — so we understand why it may be hard to know which loan you need to take, and what your next steps are.
Fortunately, there are a few ways of breaking down the process so you understand what you must do at each stage. This will guarantee that you understand exactly what you are signing yourself up for before you put your pen on the page and sign the document.
Whether you want to know more about the process of taking out your first loan or desperately need to know exactly where to begin to avoid sleepless nights, this article has got you covered!
Let’s dive right into this topic.
Figure Out The Why
The first thing you must do before taking out your first loan is to understand why you are following this course of action. Taking out a loan is a huge financial step and you could find yourself in some muddy waters if you aren’t able to properly manage your money. Ensuring that it’s a logical step is crucial to your future financial success.
You can speak to Payday loan Rock Hill SC companies to get some advice on where to begin or what your next steps should be.
Loans are often taken out for the following reasons:
- To pay off a wedding
- Cover emergency costs (home or medical bills)
- Help towards car payments
- Consolidate debt
Work Out Your Options
Once you’ve worked out the why it’s time to turn your attention to the how. The first important step here is to work out which type of loan it is that you need for the purpose. Generally, taking up a personal loan is the easiest way of gaining instant access to much-needed cash if you’re in a pinch.
Like you would for any insurance policy, make sure to shop around and find the best deal that suits your needs and is within your repayment budget and strategy. Research is key in this instance.
Alternatively, you could look into government grants or federal loans that may be better suited for the purpose. Many of these will come with much lower interest rates or might not need to be paid back at all!
Understand Your Credit Score
As a beginner, you might be a bit confused about the types of documents or records that you have that a lender will look at. One of the most important is your credit score.
Your credit score highlights whether you have missed payments and your previous credit history to prospective lenders so they can gauge whether you would be suited to the loan.
Taking time to check your credit score means you can visualize your chances of successfully qualifying for the loan that you would like to take out. The better it is, the better your chances will be of obtaining lower interest rates, building up your savings, and even making lower payments. This is because lenders look more favorably on higher credit scores.
If you need to make improvements to your credit score before applying for a loan, all you need to do is make payments on time or use a credit card and pay it off in full.
Know How Much Money You Can Borrow
You must then switch your focus to working out how much money you can actually borrow. The key is to think realistically about what you can afford to borrow and repay each month.
Even having the money ready in your account to cover this monthly repayment doesn’t mean you’re eligible to afford the loan in its entirety. Many people have taken out phone contracts that they cannot afford but want, and the effect is the same — you are left short of money after all expenses have been taken care of.
Rather than focusing on the loan’s APR, you can look at the total amount repayable (TAR) to work out how much you’ll borrow and the total amount of interest you will pay throughout the repayment of your loan.
To summarize: when you look at a loan make sure to realistically consider the monthly repayment rate and the amount you’ll need to pay back. If you cannot afford the loan then you could wind up getting yourself into unnecessary debt.
Sign On The Dotted Line
And just like that, you’ve nearly come to the end of taking out your first loan! But before you close the deal, however, you must check that you understand all of the details and loan terms. You don’t want to be entering into something legally binding if you do not truly understand what you are agreeing to!
This is especially important as a beginner in the world of borrowing as you may be setting yourself up for future borrowing success or failure.
Check the total loan cost, the APR, and the additional fees you may be subject to throughout your borrowing period. This could be anything from a small late payment fee to a costly payment penalty. Knowing these details will help you to stay on track when making repayments.
Summary
As a beginner, taking out your first loan can be very difficult. Yet if you take each step as it comes, you should be able to complete the process of taking out a loan without a hitch. Provided you are realistic about the amount you can borrow and the length of time it will take you to repay your loan, taking out a loan really shouldn’t be all that difficult for you!
